It is less than two years since pub chain Marston’s, in the depth of the first Covid winter, rejected cash offers from a US private suitor at 88p, 95p and 105p a share, saying they “very significantly” undervalued the business and its prospects. Share price today: 38p.
One cannot, then, yet say the board has been vindicated by events. Post-lockdown reopening ran into cold realities of a cost-of-living squeeze, soaring energy prices, higher wage bills and rising interest rates. The entire hospitality sector continues to be valued at semi-depressed prices.
Hope springs eternal in the boardroom, though, and here comes Marston’s chief executive, Andrew Andrea, sounding almost perky. Revenues from the 1,468 pubs were back at pre-pandemic levels in the last financial year and an underlying pre-tax profit, of £27.7m, reappeared. While “cognisant of the current macroeconomic environment”, trading in November was “positive”, Christmas bookings are “encouraging” and World Cup football on the telly all day is currently a bonus.
And since pub companies – or, at least, those like Marston’s that hitched themselves to a debt securitisation structure years ago – are quasi-property companies, the net asset value also matters. On that score, Marston’s reckons its per-share value improved from 64p to 102p over the course of the year. So, at 38p, the stock market sees its pint as substantially less than half full.
There is a classic post-pandemic investment debate in miniature here. Bears see debt of £1.2bn as far too much financial leverage, even allowing for Marston’s “back to a billion” target for 2026. Optimists believe the low point for trading profits probably passed with the end of lockdown and that, even in recessions, decent freehold pub estates tend to display a certain degree of resilience. Next year’s outlook can always deteriorate further, of course, but there is currently a glaring disconnect. More than a few consumer-focused companies sound more positive than the stock market thinks they should be.
Why is Ofgem treating energy companies like a bank?
One reason why the collapse of 29 energy suppliers will cost bill-payers £2.7bn (not counting Bulb, which may add £6.5bn on its own) is that so many of these firms were using other people’s money as working capital.
There were two main pots of cash: the so-called “renewables obligation” (RO) payment that the firms collect and pass on to support government schemes; and customers’ cash balances, which Ofgem’s chief executive, Jonathan Brearley, rightly said in June had been used “like an interest-free company credit card”.
It was therefore baffling that the regulator, in its belated attempt 10 days ago to impose order on the sector, performed a U-turn. Instead of insisting that customers’ balances are fully ringfenced, which was its original thought, only the RO cash will get the full separation treatment.
The new idea is that stiffer capital requirements will give suppliers more financial backbone to absorb shocks, and Ofgem officials will prowl their beat more aggressively to spot anybody treating customers like a piggy-bank. It was all about striking “the right balance between resilience and competition”, argued Brearley.
It’s not only this column that thinks the failure to impose ringfencing on customers is bizarre. Here’s Dieter Helm, the big academic brain in the energy sector, skewering Ofgem’s argument that it is following a banking regulation model: “Since when is the business of billing, and metering and debt collection like banking?” he asks. “Why do you have to lend money to suppliers to keep their businesses afloat?”
Absolutely right. The idea that energy companies can fund themselves from customers’ deposits crept up by stealth. It is not progress. And, as Helm argues, Ofgem’s unwillingness to address the issue at source may suggest the sector is “on very shaky ground”. That is not progress either.
Market still unimpressed by Vodafone
If a sub-100p share price was bad enough for Vodafone to terminate its chief executive, the board cannot be pleased with what’s followed. On day two after Nick Read’s exit was announced, the shares closed a whisker under 90p on Tuesday.
The lack of a positive reaction probably reflects worries over the dividend and the length of time it could take to hire a replacement (assuming Vodafone recruits from outside). There’s also a more immediate concern about the talks to combine with Three to form the UK’s largest mobile operator.
In theory, Read’s departure doesn’t alter the negotiating script one jot. But the theory had better be correct.